Tuesday, 20 June 2017

Up to 40 passengers on board a Perth-bound Qantas flight have been removed from the aircraft because it was reportedly too heavy to fly.

Passengers on board the Boeing 737-800 Sydney to Perth flight, according to Radio 6PR, had their names called out and were told to disembark the plane.

One passenger commented her row was empty by the time the plane took off.

A Qantas spokeswoman said an issue with the fuel pump had affected the plane’s load readings.

As a result, a number of customers were reaccommodated onto the next available service, which departed shortly after, she said.

Keeping the upheavals against various airlines companies worldwide, the Australian company, however, arranged for subsequent flights for the deplaned passengers.

Thanking everyone for their co-operation and support the spokesperson added, We sincerely thank our customers for their patience and understanding.

The flight which was scheduled to arrive in Perth at 7.40pm was delayed by over an hour, due to the “overload” problem.

To be fair, the airline, under Alan Joyce, has done a very good job of making the most of a difficult operating environment, and the shares are trading over five times higher than their 2014 lows. But that's recent history.

You see, there was a time, way back before the global financial crisis, when Qantas was the target of private equity interest.

Those whose memories are long enough (and not too scarred by the events of 2008 and 2009) might remember the name Airline Partners Australia.

The group offered $5.45 per Qantas share in December 2006, a bid strongly endorsed by Qantas' then-chairwoman Margaret Jackson.

She was howled down and derided by many of the business and investing community at that time, many of whom said the deal – despite being about 30 per cent more than the then-current share price – undervalued the airline.

History tells us that Jackson was dead right.

Despite trading at a premium to the bid price in the months after it was unveiled,in the vain hope that another takeover would come, it then slumped and hard.

Only now, in June 2017 – almost 11 years later – has the share price recovered to the same level as that bid.

That's some lost decade.

In hindsight, that's an easy call to make. But it was plainly obvious at the time, too. That $5.45 represented 21 times the airline's trailing profit of $0.26 per share – a lot for any company, but crazy for a capital-heavy airline in strongly and irrationally competitive market.

But it gets worse: in the following 11 years, the company earned $0.82 per share. No, not each year. No, not on average.

If we graciously exclude inflation, that $5.45 was 66 times the average profit over the next 11 years. And shareholders said no.

Of course, it's easy looking back. But even at the time, expecting that Qantas' future would be all roses, after decades of low profits and cut-throat competition was, as Yes, Minister's Sir Humphrey might have said, courageous.

The four most dangerous words in investing are 'this time it's different'.

Which leads us to another question. Given the historical parallel that the share price has now reached, what should we make of Qantas today?

Is it a new airline? Is it different this time? Well, as I mentioned above, Joyce has done a great job with Qantas.

This is an industry in which avoiding bankruptcy is no mean feat, let alone presiding over a share price that's almost at a 10-year high.

And Jetstar's existence, and relative success, does change the situation somewhat, allowing Qantas to compete with low-cost carriers.

We can't know the future. Maybe the skies ahead are indeed clear and free of turbulence for The Flying Kangaroo. But, as Sir John Templeton famously observed, the four most dangerous words in investing are, "This time it's different".

Airlines are notoriously cyclical businesses. And with Qantas' profits – and share price – near 10-year highs, the risks are clearly to the downside. I can't speak for what Jackson would do these days, with the share price around 2006 levels, but I'd suggest investors should take her advice from those days, and take the money. There are better opportunities out there.